Kuehne + Nagel International AG

Ladies and gentlemen, welcome to the CUNY Nagel Q3 2025 Results Conference Call and Live Webcast. I am Valentina, the Chorus Call Operator. I would like to remind you that all participants will be in listen-only mode and the conference is being recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing STA and 1 on your telephone. For operator assistance, please press STA and 0. The conference must not be recorded for publication or broadcast. At this time, it's my pleasure to hand over to Stefan Powell, CEO of Kühne Nagel. Please go ahead.

Thank you very much, Valentina, and good afternoon and welcome for the presentation of Kühne Nagel's 9 Months 2025 Financial Results. I'm CEO Stefan Paul, joined today, as always, by our CFO, Markus Blanka Graf. We go through the slides first and then, as Valentina said, we focus on the Q&A in about 15 to 20 minutes from now. Let's go into page number two, the nine-month results 2025. Overcapacity and softer demand in the third quarter of 2025 made the logistics market environment more challenging. Even so, we significantly expanded our global market share in air logistics and also in the SME segment in sea logistics. Year-to-date group EBIT declined by 13% year-over-year, excluding currency effects, as yield came under greater pressure. This was centered in sea and air logistics, which combined year-to-date EBIT down 16%, again excluding negative currency effects. The combined sea and air conversion rate was 28% over the first nine months of the year. The consolidation of IMC has reduced the combined conversion rate by about 100 basis points since January this year. Group EPS declined 18% year-over-year or 15% excluding currency effects. In addition to our expanding market share, the bots in the Q3 result is the further improvement of our free cash flow. Conversion. It reached 105% in Q3 alone, the first time it has exceeded 100% since Q3 in 2022. Conversion over the first nine months of the year was 66% versus 33% last year. In response to the Q3 financial performance, we are announcing measures to reduce recurring operation costs by at least Swiss francs 200 million over the coming quarters. Markus will provide you with more details shortly, but first, let's turn to the usual review of the performance by business units. Page number 3, we start as always with C-Logistics, volume in container units on the left, GP per TU and then EBIT per TU, always in Swiss francs. C-Logistics headline, overcapacity puts pressure on years. Underlying sea logistics volume grew by 2% in Q3, while the addressable market was flat. This growth did not meet our aspirations, however, after we have achieved 5% underlying growth in the first half of the year versus addressable market growth of plus 2. Trade was weakest in the Transpac, where we have relatively large exposure, followed by European and North American export markets. In contrast, European imports were quite strong. Overall SME share expanded Q over Q in Q3. Deployed capacity in Q3 far exceeded demand and intensified pressure on margins. This is evident in the central chart on this slide where the average yields decline 10 percentage points Q and Q. The Q3 EBIT was SW111M, reflecting the near full effect of the yield pressure, as operating costs went down only 1% Q after Q. With this result, C-Logistics conversion rate stands at 24% in Q3 or 25% on an economic basis. Let's move quickly to Air Logistics, page number 4. ongoing market share expansion. In air logistics, volume grew by 7% in the third quarter, well ahead of the estimated 4% market growth. This is consistent with 7% volume growth in the first half of this year. Perishables and semiconductors, including hyperscalers, drove volume expansion in Q3, with the latter accounting for about half of the overall year-over-year growth. Average air logistics yields also came under pressure. They declined by 6% Q&Q due to excess capacity. E-commerce demand contracted sharply following the elimination of the U.S. stimulus exemption. An absolute reduction of operating costs by 3% quarter over quarter offset about a third of the yield pressure. This resulted overall in a Q3 EBIT of SwissRank's 92 million and a conversion rate of 23%. We also announced today that Partners Group exercised its option to put its 24.9% equity stake in Apex to Cunanada. The transaction is expected to be settled in cash during Q4 against the recognized liability of SwissRank's 886 million in our balance sheet. The action will be financed by bank loans. Let's have a look at page number 5, road logistics. Over-proportional exposure to weak European market. We achieved a net turnover growth of 6% in Q3, excluding currency effects or 2% excluding the contribution from TDM. That's our recent Spanish acquisition, which we consolidated for the first time in Q3. We continue to expand our global customs activities in an environment of fast-changing tariffs, mainly in the US, but as well in Europe. Our core European road markets remained under pressure in Q3, which was seasonally the weakest quarter over the year, July and August. Demand levels are still below the last year's level. We continue to mitigate these challenging market conditions effectively by focusing on pricing, capacity management and cost control. Road logistics overall delivered an EBIT of 20 million Swiss francs in Q3, which is a decline of 9% year-over-year versus an underlying 3% drop year-over-year. The conversion rate of 6% was one percentage point lower than last year in road logistics. Now, contract logistics page number 6, steady growth momentum. Contract logistics produced an EBIT of SwissRex 62 million in Q3. This is the second strongest quarterly result ever. and reflects 9% year-over-year EBIT growth, or 12% excluding currency effects. Net turnover grew by 5% year-over-year in Q3 on a constant currency basis, in line with growth over the first half of the year. This reflects continued market share expansion, which gains, as always, centered in healthcare and e-commerce. The conversion rate of 7% in Q3 is also comparable to recent quarters and improvement versus Q3 last year. This concludes my comments on the performance of the business units. With this, I now hand over to Markus for a closer look at the financials and in particular our cost reduction program.

Thank you, Stefan, and good afternoon, everyone. Thank you for your interest once again in Kuninagi and taking the time today to review our latest financial results. On the income statement, I would like to draw your attention to the most significant developments in the third quarter, which relates to yield pressure and ongoing currency headwinds. Yield pressure in both sea and air logistics intensified in Q3, contributing to the net CHF 80 million decline of group gross profit. This includes a 4% negative currency impact in the third quarter alone, which equates to 85 million CHF. I will come back to this topic when reviewing our updated outlook in a few moments. Before that, let's take a quick look at working capital. Working capital, we can see some increase of the net working capital intensity to 5.1% at the close of the third quarter versus 4.8% at mid-year and 5.1% to the same level at the end of Q1. Both VSOs and DPOs came under pressure over the most recent quarter, with DSO up 1.6 days and DPO down 0.6. This development and volume growth contributed to a 6% quarter-over-quarter increase in the networking capital. I will elaborate a bit more on the working capital development with the review of free cash flow generation. Continuing with the cash and free cash flow, in the third quarter, we produced 226 million Swiss francs of free cash flow, which equates to a conversion rate of 105% versus 82% last year. For a better illustration, let me move on to the next slide. And in Q3, overall networking capital generated a net positive inflow of 10 million Swiss francs, despite the expansion of our core networking capital. This is the first inflow since the fourth quarter 2023. On a year-over-year basis, this represents an improvement of 131 million Swiss francs. This contributed to the significantly improved third quarter cash conversion of 105%, as I mentioned before, which compares to the 82% of last year. However, that is below the historical average for a third quarter, as you can see on the slide, and we attribute the gap, which continues to close, to relatively robust air freight volume and contractor J6 turnover growth. We expect this to continue. And note that the fourth quarter is typically the strongest quarter of the year when it comes to free cash flow generation. Now, as Stefan mentioned, let me talk about our actions and how we are taking action to mitigate effects of a challenging market environment. This comes in the form of a cost reduction program. targeting at least 200% of annualized savings. We estimate just over half of these savings are linked to staff-related costs, including FGE reductions. The balance of savings is split almost equally between facilities-related costs and a basket of other variable expenses. We anticipate achieving the full run rate of these savings by year-end 2026, or in other words, they should be fully reflected in the first quarter 2027 result. The costs associated with this program should not exceed a mid-double-digit million and are to be booked in the fourth quarter 2025 and the first quarter 2026. Before we move on to the updated outlook, let me emphasize that these measures will not impede our ability to grow in line with our already communicated strategy. So from today's perspective, we anticipate a fourth quarter recurring result comparable to that of the third quarter. Based on that expectation, our year-to-date financial performance And the challenging market conditions, we are reducing recurring EBIT guidance to greater than 1.3 billion Swiss francs. Note that our guidance excludes non-recurring items, such as the 16 million Swiss franc charge in the second quarter and the items that we plan to book in the fourth quarter associated with our cost reduction program. Lastly, the APEX transaction will result in significantly expanded net debt by year-end 2025. And note that long-term, we continue to prefer a small net cash position. We can also confirm that this transaction will have no impact on our dividend policy. With this, I would now like to close our prepared commentary and presentation with a summary of key takeaways. We are launching a sizeable cost reduction program in response to the challenging market environment. The tough conditions are putting heavy pressure on sea and air freight yields at the same time. We maintain our long-term focus on market share gains in attractive sectors and continue to make progress. The expansion of our stake in APEX will be accretive to our EPS basis. And lastly, we are adjusting our outlook for recurring EBIT in 2025. With this, I want to thank you all for your attention and hand back to Valentina to open the Q&A session.